How Netflix's stock lost its FANG-era mojo
Kayla Bartkowski/Los Angeles Times via Getty Images
- Netflix shares sit at a one-year low following disappointing earnings.
- The company's stock has fallen victim to high expectations and lofty valuations.
- It doesn't have the backstop of the AI trade, and is splashing big to acquire Warner Bros. Discovery.
The last decade in the stock market has been dominated by two distinct eras.
From 2015 to 2019, "FAANG stocks" were all the rage. The elite crew of Facebook (now Meta), Amazon, Apple, Netflix, and Google (now Alphabet) represented the big winners of the mobile and cloud-computing explosion.
In more recent years, the Magnificent 7 — populated by Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla — has taken the reins. Driven by immense optimism over the future profitability of AI, the group has become a market-moving behemoth.
Somewhere, during that transition, one piece of the FAANG cohort lost its elite status and did not roll over into the Mag 7: Netflix.
The exclusion makes sense. Netflix isn't known as an AI stock, so it doesn't naturally fit with the Mag 7. And based on the relative underperformance of Netflix shares over the last five years, compared to every stock in the group but Amazon, it's clear investors have accepted its spot away from the "cool table" in the cafeteria.
So what exactly is up with Netflix lately? Its latest earnings report from this week offers a good encapsulation of the company's recent issues:
1. Rising costs
Netflix's pending acquisition of Warner Bros. Discovery is expected to add hundreds of millions in costs in 2026. This comes alongside plans to boost TV-show and film spending by 10%.
2. Decelerating revenue
The company is forecasting revenue growth of roughly 13% this year, down from 16% in 2025. And it's going to get more expensive to sustain that growth if Netflix continues its push into pricier new areas like live sports — a key push in its battle with YouTube over viewer eyeballs.
3. Cash flow
The $11 billion of free cash flow forecasted by Netflix missed analyst estimates.
Shares dropped as much as 6% before finishing 2% lower, at a one-year low. The prolonged decline can be traced back to mid-2025.
Netflix's two prior earnings reports, in July and October, were among the main culprits. The company faced many of the same issues as its elite Mag 7 peers — namely sky-high expectations, sensitivity to heavy spending, and surprise tax charges.
The main difference is that Netflix doesn't have the backstop of the AI trade. It hasn't been given the same benefit of the doubt that its big spending will translate into gold-plated earnings growth.
Still, on the heels of Netflix's multimonth slump, analysts are predominantly bullish. 65% of analysts have a "buy" on the stock at current levels, while just 4% have a "sell."
Morgan Stanley says the company's progress towards quickly building a $3 billion-plus advertising business is being underrated by the market. Other firms, meanwhile, simply think the stock has fallen so much that its valuation looks attractive.
The question now becomes if investors will buy in and start pushing Netflix back to the great heights it once enjoyed.